Poverty Alleviation and Investing in Agriculture in Africa

By Bamidele Seun Owoola and Nick Harriss

African Agriculture:  Unexploited Potential

Historians and anthropologists have long maintained that the development of agriculture made civilization possible, as it allowed for the support of an increased population and labour specialisation, leading in turn to larger societies and eventually the development of cities.

While agriculture has modernised and intensified in most of the world, Africa has remained predominantly at the subsistence level, leaving the continent as the last major land mass with potential to be a major player in global food markets.

The agricultural population in Africa stands at 530 million people, and is expected to exceed 580 million by 2020. The population working primarily in agriculture accounts for 48% of the total African population (and almost 70% in East Africa), plus many more who work in the sector part time.  By comparison, roughly 2% of the UK population work in agriculture.

Agriculture and Poverty Alleviation

With more than half of all people living in Africa depending on agriculture for all or part of their livelihood, the encouragement and adoption of methods that would grow agricultural output would result in incomes being boosted, increased economic growth and a general improvement in living conditions. The poverty alleviation benefits of agricultural investment is confirmed by recent evidence from the International Food Policy Research Institute

A widespread body of evidence from many settings around the world shows that agricultural investment is one of the most important and effective strategies for economic growth and poverty reduction in rural areas. GDP growth in agriculture has been shown to be at least twice as effective in reducing poverty as growth originating in other sectors (World Bank, 2007). Productivity growth in Agriculture generates demand for other rural goods and services and creates employment and incomes for the people who provide them. Africa also has the largest share of the world’s uncultivated land with rain-fed crop potential. Unlike many other parts of the world, in Africa there is room for agriculture to expand.

Investment by existing farmers, as well as the public and private sector in agriculture and supporting sectors can increase the availability of food on the market and help keep consumer prices low, making food more accessible to rural and urban consumers.

A Wealth of Undeveloped Agricultural Resources

Unfortunately African agriculture is very far from reaching its potential. In Africa, only about 6 per cent of the total cultivated land is irrigated, compared with 37 per cent in Asia. It is estimated that irrigation alone could increase output by up to 50 per cent in Africa. Likewise, farmers in sub-Saharan Africa use less than 13 kilograms of fertilizer per hectare. This compares with about 73 kilograms in the Middle East and North Africa, and 190 kilograms in East Asia and the Pacific.  Small increases in organic or inorganic fertilizer use in sub-Saharan Africa could produce dramatic improvements in yields.

Today, small farms represent 80 per cent of all farms in sub-Saharan Africa. They contribute up to 90 per cent of production in some countries. Yet too many smallholders are ‘poor’; but this could change with investment. Small farms are often more productive per hectare than large farms, and in Africa, they have the potential to be key suppliers to growing urban markets as well as rural markets.

Furthermore demand for food and higher-end food products is growing across the continent from Africa’s increasing middle class, and there is growing foreign interest in the untapped potential of Africa’s fertile land.

Drawbacks within the African Agricultural Sector Include:

  • Poor infrastructure in general;
  • inadequate cold storage facilities;
  • unexpected disruptions in commodities trading;
  • lack of adequate feeder roads to production areas;
  • inadequate dry storage facilities; and
  • congested ports prohibiting the export or import of products on time.

Opportunities in Agricultural Products and Investment

Opportunities exist in the processing of agricultural products such as cereals (maize, rice, millet) starchy crops (yam, cassava. sweet potato, plantains), vegetables (carrots, cabbage, aubergine, tomato), fruits (pineapple, paw paw, banana, mango), plantation crops (rubber, sugar cane, cotton, oil palm, cocoa, coffee), livestock (cattle, pigs, poultry, sheep), fisheries (tuna, tilapia, catfish), and rearing of silk worm for the production of raw silk.

Investment opportunities exist in the agro-processing industry to add value, reduce post-harvest losses, promote price stability and expand demand for local agricultural produce. For example, with the processing of cocoa beans into cocoa products and fruits into fruit juices, dairy products and others.

Investment opportunities also exist in the agricultural support sector and technologies that aid in the production and distribution of food. This notably includes the development of irrigable land through irrigation. There are further opportunities in standards, training and certification; capacity building for management and market-oriented enterprises; market intelligence research and in the development of agricultural finance and insurance.  Other areas could include alternative fuel producers/distributors, grain storage facilities and water treatment companies.

Generally agricultural investment performance has moved in very different cycles from traditional asset classes like stocks and bonds; as a result, adding farmland to an investor’s portfolio enhances diversification and can result in lower volatility. Over the past 40 years, agricultural land has demonstrated a low correlation with both stock and bond indices. Moreover, a globally diversified portfolio of agricultural investments can further reduce risk, as it spreads its exposure among a variety of crops, government structures and climates. Returns on farmland investments have historically outpaced inflation in a variety of market environments. The NCREIF Farmland Index’s Total Return has consistently provided returns more than double the inflation rate since 1991.

 

 

 

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